Mutual funds Investment may not sound cool like investing directly in the stock market.
But for many people, they are the best alternative way to achieve financial goals in life.
There are infinite reasons to invest in mutual funds. For the sake of simplicity, I have narrowed down to a few very important reasons only which drive the message that mutual funds are the best investment choice.
Here are the top reasons why you should consider mutual funds investment:
1. You do not have the time or the skills to be an Active Investor
Many may argue why this should be the top reason for mutual funds investment.
But if you are a very busy person, with no time to spare on following the markets and inadequate knowledge and skills, there is no chance you can make any good returns even after several years of investing.
Investing in individual stocks requires considerable amount of time and resources.
Active Investors, fund managers and analyst dedicate their professional lives to researching and analyzing current and potential holdings every day.
So, if you fall in this category, start Investing in mutual funds to fulfil your financial goals.
2. Mutual funds are a means of diversification
Owning a mutual fund over an individual stock is a good way to diversify your portfolio which you would not get investing small amounts of money in a few shares.
For example, if you have INR 10,000 to invest monthly, you can buy maybe 200 shares of five stocks. But when you buy a mutual fund, it may own 50 to 200 shares.
So, even if one or five shares depreciate its value, the entire fund would average its fall. Your fund manager would make sure that the fund is not heavily exposed to any one share or sector.
3. Option and ease of low Systematic Investment Plan and Withdrawals
Many mutual fund companies allow investors SIP’s of as little as INR 500 per month.
Depending on your Investment budget, it makes it affordable for you to start participating in the markets immediately thus eliminating the chance for your cash to remain idle in a savings account without any potential of real returns.
These can be an advantage to you as an Investor as it would inculcate good habits such as discipline investing and an early start to your investing plans.
Also nowadays with the ease of net banking, your SIP can be directly link from a bank account to the mutual fund.
Likewise, if you wish to for a WIP, it can be regularly withdrawn automatically from a mutual fund and be deposited into your bank account.
4. Mutual Funds Investment is highly liquid
If you need money urgently, you can get cash from most mutual funds within a few days unless your mutual fund is a close ended fund with certain lock in period.
If you want to sell your mutual fund, the proceeds from the sale are available within a few days.
This type of liquidity is hard to find with your other types of investment assets such as fixed deposits or Real estate.
5. Mutual funds Investment are regulated by higher Governing authorities
In India, all Mutual Fund firms are strictly regulated by SEBI (Securities Exchange Board of India). They are required to register with SEBI and are obliged to follow strict regulations designed to protect investors.
So, it is considered as one of the safest class of investment in the securities market.
6. Mutual Funds Investment has variety of Investment vehicles
Mutual funds investment funds nowadays have a lot of varieties such as equity funds (large cap, mid Cap, Small cap), debt funds (Long term, short term, ultra short term), hybrid funds (Balanced, aggressive), bond funds, sector funds, Index funds and money market mutual funds.
For example, if you have a good idea about the Pharmaceutical Industry and know that it will perform very well over the next 5-10 years, you can select a sector specific fund in the Pharmaceutical space and invest without any difficulty.
Likewise, whether you are into active portfolio management with no interference from a manager (passive funds and index mutual funds), the availability of different types of mutual funds allows you to build a diversified portfolio at low cost with ease.
As is with any other type of investment, there are also certain risks involved in buying mutual funds. These investment options can experience market fluctuations and sometimes provide returns below overall market returns.
But overall, in a longer time frame of 8 years and above the power of compounding kicks in.
So, if you want to accumulate real money for your financial goals such as children higher education, marriage and retirement, investing in mutual funds is one of the best investment vehicles.
Please share your views in the comments below and share this article with someone who is still deciding whether to go the mutual fund way!